MarketsSep 28, 2021
US cannabis stocks are undervalued but their future depends on legalization
Regulatory Shift
Victor Lei
Discover
Analysts see a “generational wealth opportunity” in cannabis stock — expecting a future of green returns — but all investors see is red.
Last week, a bill to allow banks to do business with US cannabis companies made progress in the White House — giving hope to underperforming cannabis stocks.
Recreational use of cannabis is legalized in 18 states but cannabis is still illegal on a federal level:
Despite the lack of US investors, US cannabis companies are rapidly growing and state level regulations continue to make progress as New Jersey, a big state for cannabis sales, comes online in the next few months.
Last year, Biden’s presidential appointment gave the industry hope for full legalization, but there has been little progress since — sending the industry on a free fall for months.
According to Todd Harrison, these are the “FANG” stocks of cannabis dominating the industry — Curaleaf, Green Thumb, Trulieve and Cresco Labs. All four companies:
Compared to Canadian cannabis companies (i.e. Tilray and Canopy), which are allowed to trade on major US exchanges, these major US cannabis companies are much more profitable while trading at a discount.
Looking at their valuations, US cannabis stocks are so cheap and growing so fast that it’s hard to believe they’re priced at their current levels.
The sector is heavily oversold and shorted, with terrible sentiment and legalization is still likely years away — progress is likely to be made in small steps.
But when legalization does come, it could unleash investor demand, lower costs and increase sales — which could ignite the industry.
The ETF way: These four cannabis stocks are the largest holdings in the AdvisorShares Pure US Cannabis ETF (NYSE:MSOS) — one of the only US ETFs giving investors exposure to these US cannabis companies.
